On 20 December 2018, the Minister for Legal Protection (the "Minister") sent a letter to Parliament about the ongoing modernisation of Dutch corporate law. The letter follows up on the 2016 progress letter on the same subject. The letter covers six subjects, which are summarised in this newsletter. Where possible, the time at which a bill should be submitted pursuant to the annual schedule of the Ministry of Justice and Security, is mentioned. Finally, we bring to your attention a recent bill that would require greater transparency by foundations and other civil society organisations.
Evaluation of the right of inquiry and dispute resolution
In the legally announced evaluation study, a number of points for improvement were examined. Below we discuss only those points that could lead to legislative changes.
- Access to the inquiry procedure
- According to the Minister, access to the inquiry procedure for shareholders of certain listed companies may be disproportionately impeded. Under current legislation, shareholders of a listed company with subscribed capital of maximum € 22.5 million can submit an inquiry request only if they hold at least 10% of the subscribed capital of shares with a nominal value of at least € 225,000 (or a lower value stipulated in the articles of association). Assuming a nominal value of € 0.01 per share, it would be necessary to hold 22.5 million shares which, at a market price of € 20 per share, would be worth € 450 million. On the other hand, for shareholders of a listed company with subscribed capital of more than € 22.5 million, a lower threshold of € 20 million applies, valued at closing price. Research has shown that (more and more) listed companies may consciously use a low nominal capital in order to render exercise of the right of inquiry more difficult. The Minister will investigate whether this practice leads to unjustified inequality in access to inquiry proceedings.
- More effective dispute resolution
- The study revealed that the courts in general tend to be too cautious in the context of dispute resolution, so that the exit or expulsion of shareholders is not always possible in practice. The Minister believes that the effectiveness of dispute resolution can be further improved. This could be accomplished in conjunction with a possible adjustment of the conditions to access the inquiry procedure.
Modernisation of NV rules
In his progress letter, the Minister specifically mentions modernisation of the rules governing public limited liability companies (naamloze vennootschappen, "NVs"), as announced in the previous progress letter on the modernisation of company law. According to the Minister, the following subjects are concerned:
- Implementation of the Shareholders' Rights Directive
- On this subject, please refer to our November 2018 newsletter. The deadline for implementation of the directive in national law is 10 June 2019. A bill is currently pending before the lower house of Parliament.
- Cooling-off period for listed companies
- A public consultation was launched on 7 December 2018 regarding the call for a cooling-off period by the board of a listed company in the event of shareholder activism or a hostile takeover. See also our December 2018 newsletter. The consultation runs until 7 February 2019, with a bill scheduled for submission in Q2 2019.
- Research into a broader range of protective measures
- The Minister is responding to a motion by the lower house of Parliament to further examine protective measures, including shares with double-voting rights as are used in France. He believes that the introduction of a statutory cooling-off period would achieve a better balance between shareholders (including minority shareholders) and the company's management than the permanent grant of double-voting rights.
- Adjustment and recovery of director bonuses (clawback and creaming-off rules)
- The Minister is considering extending the current clawback rules by giving the supervisory board the right to reclaim a bonus if it would be unacceptable to maintain it with reference to standards of reasonableness and fairness. In addition, it is proposed to grant the supervisory board additional powers, further to the former creaming-off rules, regarding the adjustment of remuneration in connection with major corporate events such as a takeover.
- Dematerialisation of bearer shares
- For more information on this subject, please refer to our March 2017 newsletter. A bill is currently pending before the lower house of Parliament and is expected to be adopted in 2019.
- Further modernisation of NV rules
- The Minister intends to organise a stakeholder meeting in the first quarter of 2019 in order to gauge the extent to which there is a need for the abovementioned tools, such as shares without nominal value and clawback arrangements. On this occasion, other topics may also be addressed, such as modification of the rights of depositary receipt holders, the introduction of non-voting shares and shares without dividend rights, and shortening of the notice period for a general meeting.
Introduction of a consultation right for the works council in BVs and foundations
Since 1 July 2010, Book 2 of the Dutch Civil Code has given the works council in NVs a right to voice its opinion on certain important board decisions, decisions to appoint, suspend and remove directors and the company's remuneration policy. Further to a motion by the lower house of Parliament, research was carried out into the possibility of introducing such a right for the works council in private limited liability companies (besloten vennootschappen, "BVs") and foundations. However, in the government's opinion the introduction of such a right would not yield sufficient added value.
Proposal for a European directive on the online establishment of companies and the proposal for a directive on cross-border conversions, mergers and divisions
These proposals are currently being negotiated in the Council and the European Parliament. Negotiations on the directive to allow the online establishment of companies are going somewhat more smoothly: on 5 December 2018, the representatives of the Member States agreed on the new rules. Subsequently the decision was made to enter into interinstitutional negotiations on 12 December 2018. At present, the date of entry into force of the two proposals is not yet known.
Additional legislative initiatives: transparency of civil society organisations such as foundations
On 21 December 2018, a bill was launched for public consultation which would require civil society organisations, including foundations and associations, to disclose, by means of a donation overview, each donation received in excess of €15,000. By making such cash flows transparent, the government wishes to prevent financial and economic crime as well as the exertion of undesirable influence from abroad through cash donations to political, social and religious organisations. Failure to comply with the disclosure requirement will be deemed an economic offense. The donation overview should indicate the amount of the donation, the name and place of residence or establishment of the donor and the date of receipt. Pursuant to an order in council (AMvB), organisations that meet certain requirements may be fully or partially exempt from this obligation. As there is no draft order in council yet, it is not yet clear which organisations will qualify for the exemption. The bill also provides for an obligation for foundations to disclose and file their balance sheet and income statement with the trade register. Once again, foundations that meet certain to-be-determined conditions will be exempt, in whole or in part, from the filing obligation pursuant to a future order in council.
The minister's letter indicates the specific areas in which he plans to propose legislative changes to modernise company law. Each of his proposals will have a long road ahead of it before becoming law or even a bill. This also applies to the proposal for greater transparency by civil society organisations. However, the letter provides insight into the direction which the further modernisation of Dutch company law can be expected to take and what can be expected in the coming year. Certain legislative proposals are not mentioned in the letter, such as the bill for the Act on the Management and Supervision of Legal Entities, which is still being discussed by the House of Representatives. Proposals by other ministries are not mentioned either, such as the bill on a central register of shareholders, which is currently pending before the lower house of Parliament, and the draft bill to protect companies in the telecom sector from unwanted takeovers.